Bank finance versus bond finance

Description

"We present a dynamic general equilibrium model with agency costs where: i) firms are heterogeneous in the risk of default; ii) they can choose to raise finance through bank loans or corporate bonds; and iii) banks are more efficient than the market in resolving informational problems. The model is used to analyze some major long-run differences in corporate finance between the US and the euro area. We suggest an explanation of those differences based on information availability. Our model replicates the data when the euro area is characterized by limited availability of public information about corporate credit risk relative to the US, and when european firms value more than US firms the flexibility and information acquisition role provided by banks"--National Bureau of Economic Research web site.

Subjects

Series Statement

• Working paper series / European Central Bank -- working paper no. 547

Other Editions

• Bank finance versus bond finance: what explains the differences between US and Europe?European Central Bank2005-01-01
• Bank finance versus bond financeElectronic resourceNational Bureau of Economic Research2011-01-01